CHINAREPORT I August 2017 1
EDITORIAL
未标题-1 1 16-9-21 下午10:
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ISSN 2053-A
t the National Financial Work Conference
held on July 14-15, China’s leadership an-
nounced that it will set up a financial sta-
bility and development committee to improve the
coordination of financial regu-
lations. So far, no details have
been released on the functions
and composition of the new
committee, but it sends a clear
message that the central gov-
ernment will strengthen its
control over the financial sec-
tor.
Under the current institu-
tional arrangements, China’s
financial regulations fall un-
der the administration of four
separate agencies, including
the People’s Bank of China
(the central bank), the China
Banking Regulatory Com-
mission, the China Securities
Regulatory Commission and the China Insurance
Regulatory Commission. But with increasingly
mixed and complex financial services and prod-
ucts, the fragmented and segmented system is now
obsolete. The lack of a centralised financial regula-
tory body often leads to over-regulation in some
areas while a lack of coordination has left loopholes
in others.
In the meantime, economic growth is the top
priority of governments at all levels. This causes
distortions in financial regulation when it is bent to
allow for more growth in the short term, without
a comprehensive long-term perspective. This has
fuelled the growth of trillions of dollars of risky fi-
nancial products and led to a high level of financial
leverage.Between 2008 and 2016, China’s monetary sup-
ply experienced remarkable growth, with an aver-
age annual increase of 16 percent. The corporate
debt-to-GDP ratio also increased from 80 percent
to 127 percent, posing a serious
threat to China’s financial stabil-
ity.
Given the continued econom-
ic slowdown, there have been se-
rious concerns over the systemat-
ic financial risks China may have
to face. The China Insurance
Regulatory Commission, for ex-
ample, warned during the meet-
ing that the insurance industry
faces multiple risks, ranging from
liquidity pressures to reputation
management. Last year, Chinese
insurers used leveraged money to
buy shares in listed companies,
which triggered acute volatility
in the market.
The China Securities Regulatory Commission
has also stepped up its crackdowns on violations
of securities laws and regulations, including insider
trading and market manipulation. In the first half
of 2017, the CSRC fined 113 violators, and hand-
ed out 6.36 billion yuan (US$939m) in fines, a 50
percent increase on the entire year in 2016.
With the proposed establishment of a financial
stability and development committee, the central
government should further coordinate its regula-
tory policies. Rather than subjecting regulatory
policies to short-term needs to stimulate economic
growth, the government should strive to establish
a regulatory regime under a strategy that serves
the long-term health and sustainability of the
economy.China needs to clean up financial regulation
The lack of a
centralised financial
regulatory body often
leads to over-regulation
in some areas while a
lack of coordination
has left loopholes in
others